Microsoft Reorganization Signals Big Challenges Ahead

Microsoft CEO Steve Ballmer now has the pieces in place, but will renaming divisions and shuffling executives bring a legitimate payoff?

10 Hidden Benefits of Windows 8.1

(click image for larger view)

As expected, on Thursday Microsoft CEO Steve Ballmer announced a company-wide reorganization. Foreshadowed as far back as last fall, when Ballmer said Microsoft would become a "devices and services" company, the move is intended to make the company more cohesive and collaborative -- an important prerequisite to the connected universe Ballmer envisions, in which online experiences will translate across discrete Windows devices via the cloud.

Under the new structure, Microsoft, which employs nearly 100,000 people, will distribute activities across four divisions -- half as many as now. Given the size and scale of Microsoft's operations, it was no doubt a huge undertaking to realign the company's talents to fit its evolving goals. Nevertheless, renaming divisions and shuffling executives will likely seem simple compared to what comes next -- making the new strategy pay off.

Observers on Wall Street and throughout the IT world will be watching closely for signs of progress. Microsoft's stock price has been on the rise in recent months, propelled by strong earnings in the face of the PC market's worst downturn in history. Even so, CEO Steve Ballmer remains under pressure, as the meteoric progress of cloud-oriented businesses such as Windows Azure and Office 365 has not distracted from Windows 8's mixed reception and poor progress.

Julie Larson-Green, who had overseen Windows, will lead a new devices and studio group whose purview will include Xbox hardware, the Surface line of tablets, hardware accessories and games.

Operating systems, including the Xbox, will be consolidated under Terry Myerson, who previously oversaw engineering for Windows Phone.

Qi Lu, who had led Bing, will take over a new applications group and manage the company's Office and Skype businesses

Satya Nadella, who had been running Windows Azure, will head a new cloud and enterprise group.

Aside from the four divisions noted above, Ballmer has also expanded the role of Tony Bates, the former president of Skype. He will lead mergers and acquisitions, business development and relations with developers. Kurt DelBene, who ran the Office division, is retiring.

Some product groups will continue to operate relatively unchanged at the local level, but with new managers and cross-divisional cooperation added to the mix. Kirill Tatarinov will continue to run Microsoft Dynamics, for example, but will report to Qi Lu for product development, Tami Reller for marketing, and to the COO group, which will continue to be led by Kevin Turner, for sales.

"As the times change, so must our company," Ballmer wrote in a memo to employees that introduced the changes. Rumors of the shakeup had grown louder in recent weeks. The CEO reportedly confined reorg planning to a small group of close associates, a decision that allegedly left some excluded execs uncertain about their futures.

The anxiety of Microsoft employees aside, the new organizational hierarchy appears well-positioned to address at least some of the old system's flaws.

The timing is a factor, but I think the scope of this reorg is even more interesting. People compare Microsoft's new structure to Apple's, but Microsoft is trying to align more moving pieces than Apple has. Getting all the end user-facing Windows releases together is a big undertaking, but looping them into a larger, coordinated Microsoft universe is a colossal one.

This arguably should have happened three years ago. But it's nice to see Microsoft at least try to streamline its business after spinning its wheels for so long. It was overdue for some creative destruction. Just hope it will see this through and innovate.

Because most of Dynamics isn't even made by Microsoft. It is an umbrella brand that ties the work of several partners together. It may suffer from the 'not invented here' problem. Then again, there isn't much Microsoft invented in the first place.